Free Response to Motion - District Court of Arizona - Arizona

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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Dan W. Goldfine (#018788) Adam Lang (#022545) SNELL & WILMER L.L.P. One Arizona Center 400 East Van Buren Street Phoenix, AZ 85004-2202 Telephone: (602) 382-6000 Facsimile: (602) 382-6070 [email protected] [email protected] - and Grant Woods, Esq. (#006106) GRANT WOODS, P.C. 1726 North Seventh Street Phoenix, Arizona 85006 Telephone: (602) 258-2599 Facsimile: (602) 258-5070 [email protected] Attorneys for Plaintiffs IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Meritage Homes Corporation, et al., Case No. CV-04-0384-PHX-ROS Plaintiffs, v. Ricky Lee Hancock, et al. Defendants. AND RELATED COUNTERCLAIMS AND THIRD PARTY CLAIMS Plaintiffs (collectively, "Meritage") hereby respond to Defendant Greg Hancock's ("Defendant's") Motion for Summary Judgment ("Motion"). Defendant skews the factual record, takes quotes and evidence out of context, ignores plain and obvious evidence of disputed facts, and simply makes up law when controlling precedent is to the contrary. This Response is supported by the Memorandum of Points and Authorities as well as Objections to Defendant's Statement of Facts ("Objections") and a Controverting Statement of Facts ("CSOF"), including exhibits attached thereto. Meritage also incorporates by reference the Statement of Facts in support of its Motion for Summary Judgment and its Objections and Controverting Statement of Facts in response to Rick Hancock's Motion for Summary Judgment.
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PLAINTIFFS' RESPONSE TO DEFENDANT GREG HANCOCK'S UPDATED MOTION FOR SUMMARY JUDGMENT OR DISMISSAL

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MEMORANDUM OF POINTS AND AUTHORITIES I. ARGUMENT A. Defendant Misstates The Standard Governing Summary Judgment

Defendant misstates Calif. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466 (9th Cir. 1987) as governing summary judgment with respect to the Lanham Act claim. (See Motion at 2:7-13.) California Architectural concerned fraud and racketeering claims that are not at issue here, and no claim in this case carries a clear and convincing burden like they did in California Architectural, 818 F.2d at 1467. With respect to the Lanham Act claim, the fact-finder is to decide whether the defendants' activities with respect to Rick Hancock Homes were likely to confuse consumers. See, e.g., Entrepreneur Media, Inc. v. Smith, 279 F.3d 1135, 1140 (9th Cir. 2002) (reversing summary judgment ) (citing Interstellar Starship Servs., v. Epix, Inc., 184 F.3d 1107, 1109 (9th Cir. 1999)); Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1356 n.5 (9th Cir. 1985). The Act allows for civil liability against "any person who, on or in connection with any goods or services, . . . uses in commerce any word, term, name, symbol, or device, or any combination thereof . . . which . . . is likely to cause confusion . . . as to the origin, sponsorship, or approval" of the goods or services. 15 U.S.C. § 1125(a)(1). The governing standard is whether the use of Rick Hancock Homes to sell nearly identical homes next to Hancock Communities in the same subdivision (i.e. Sundance in Buckeye, Arizona) was likely confusing to consumers. See, e.g., Entrepreneur Media, 279 F.3d at 1140; see also AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979) (eight-factor test for likelihood of confusion). The ultimate question "is predominantly factual in nature." Id. The facts ­ simply ignored by Defendant ­ establish that actual and potential consumers looking to purchase a home from Hancock Communities, as well as vendors, were likely confused by Rick Hancock Homes. (See, e.g., Objections at ¶ 68; CSOF at ¶¶ 23, 98, 107 and 116-125.)

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Case 2:04-cv-00384-ROS

Document 469 - 2 -Filed 04/11/2007

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B.

Meritage Never Breached The License Agreement 1. Meritage Did Not Derogate or Detract from the Hancock Mark's Repute, Value, Marketability, Public Recognition, or Popularity a. The Terms "Derogate" and "Detract" Mean a Defaming Use and Not the Mere Reduction or Change in Use

Defendant has repeatedly asserted that the terms "derogate" and "detract" in the License Agreement, prevent Meritage from reducing or changing its use of the name "Hancock." (See, e.g., Motion at 3:11-5:10; Hancock's Motion to Stay Entering of

Judgment at 2:7-4:10, 5:19-26, and 8:23-9:3 (Apr. 27, 2006).) This Court has already rejected Defendant's "derogation" argument. (Compare Greg Hancock's Answer to

Plaintiff's Second Amended Complaint and Counterclaim and Third-Party Complaint of Greg Hancock at ¶¶ 32-48, 55-56, and 58-64 (May 11, 2005) with Order at 5 (Mar. 31, 2006); Greg Hancock's Motion to Stay Entering of Judgment at 2:7-4:10, 5:19-26, and 8:23-9:3 (Apr. 27, 2006) with Order at 10 (Aug. 22, 2006).) The License Agreement provides: "Licensee undertakes and agrees not to use the Licensed Marks in any manner whatsoever which, directly or indirectly, would derogate or detract from the Licensed Mark's repute, value, marketability, degree of public recognition or popularity." (See CSOF at ¶ 1) (emphasis added). The License Agreement could have required ­ but does not ­ Meritage to use the Hancock names with specific frequency or sales targets, such as 50% of homes offered for sale, or with respect to specific homes, such as all homes sold in Buckeye, Arizona. (See CSOF at ¶¶ 1-3.) See, e.g., Burma-Bibas, Inc. v. Excelled Sheepskin and Leather Coat Co., 1986 U.S. Dist. LEXIS 17650, *41-43 (S.D.N.Y. 1986) (absence of sales targets means that general language should not be interpreted as imposing sales targets). On the issues of minimum requirements or sales targets, the Agreement is silent. (See CSOF at ¶¶ 1-3.) In the trademark context, the terms "derogate" and "detract" relate to quality or context, not quantity. See, e.g., Burma-Bibas, 1986 U.S. Dist. LEXIS 17650 at *41-43 (interpreting the "derogate or detract" language, as interchangeable and related to the quality of the mark's use ­ such as using a mark in the context of pornography).
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Case 2:04-cv-00384-ROS

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"Derogate" and "detract" involve the sale of inferior or different goods impugning the reputation of the mark or conflicting with the mark ­ not the sale of fewer goods than a mark holder might desire the licensee to sell. See, e.g., Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 636 (1st Cir. 1992); Susser v. Carvel Corp., 332 F.2d 505, 519-20 (2d Cir. 1964); GE v. Alumpa Coal Co., 1979 U.S. Dist. LEXIS 9197, *3-4 (D. Mass. 1979) and cases cited therein. The strictly contextual use of "derogate" and "detract" is also consistent with their general use in tort law. See, e.g., Nat'l Bd. for Certification of Occupational Therapy v. Amer. Occupational Therapy Ass'n, 24 F. Supp. 2d 494, 511 (D. Md. 1998); 1 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION at § 3:2 (4th ed. 2006). At best, "derogate" and "detract" serve as a prohibition against active disparagement of the mark. (See CSOF at ¶ 1.) They do not serve as an "uber-best efforts" clause requiring Meritage, as the licensee, to increase the sales of licensed products above some imaginary and never agreed-upon threshold. b. If the Terms "Derogate" and "Detract" Relate to a Reduction in Use, It Is Undisputed that Meritage Sold More than $110 Million of Homes under the Name "Hancock"

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Defendant erroneously argues that Meritage abandoned1 using the "Hancock" name; Meritage, however, undisputedly has sold more than $117 million in homes under the "Hancock" name through metropolitan Phoenix since July 1, 2004. (See, e.g., Objections at ¶¶ 5, 7, 15, and 16; CSOF at ¶ 4.) Such use is in line with the Hancocks' home sales under the "Hancock" name prior to the sale of the Hancock Communities business to Meritage. (See Objection at ¶¶ 5, 15, and 16; CSOF at ¶ 5.) Even according to Defendant's own expert, Meritage increased the frequency of its use of the "Hancock" name in 2003, after Defendant was no longer the President of Hancock Communities. (See Graphs of Advertising Dollars and Total Points included in Greg Hancock's Statement of Facts ("GH SOF"), at Exhibit 112) (noting that the data points reflecting Abandonment, as defined by the Lanham Act, occurs when the "use has been discontinued with intent not to resume such use." 15 U.S.C. § 1127; see also Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 675-76 (7th Cir. 1982) (abandonment requires proof of both discontinued use and intent not to resume and evidence of expressions of intent to abandon are insufficient as a matter of law).
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total use of the Hancock name increased after Defendant left Meritage); see also Objections at ¶¶ 5, 7, and 15; CSOF at ¶¶ 4, 7-11, and 117 (identifying that Meritage continuously and regularly used and advertised the "Hancock" mark from before the lawsuit through mid-2006).) In fact, as of February 21, 2007, Meritage still had three remaining Hancock Communities Series homes available for sale at Rancho Bella Vista. (See Objections at ¶¶ 5, 7, and 15; CSOF at ¶ 9.) Lastly, even Defendant Rick Hancock conceded, on December 20, 2006, that Meritage continued to use the "Hancock" name. (See CSOF at ¶ 7.) c. Meritage's Transition of the Hancock Name to Meritage Does Not Violate the License Agreement

Defendant misstates the September 8, 2003 email from Steve Hilton to John Landon, Meritage's co-CEOs at the time, and the events surrounding the transition of the Hancock name. (See Motion at 3:11-5:10 and 5:19-6:2.) The September 8, 2003 email is nothing more than a suggestion from one corporate officer to another about how to use a license that would terminate in May 2007. (See Objections at ¶ 5; CSOF at ¶¶ 12-13.) As Hilton explained, "[Meritage] only [has] the license to the name for six years, so we need to create a smooth transition from the Hancock Communities name to the Meritage Homes name. . . . [we] [c]an't just flip the switch." (See Objections at ¶ 5; CSOF at ¶ 13) (emphasis added). In late 2003, Hilton suggested that a transition commence in late 2004 or mid-2005 and be completed before the license ended in May 2007. (Id.) This Court has already ruled that the email does not have the meaning Defendants seek to ascribe to it. (See Order at 8:12 (Aug. 22, 2006) ("aside from two e-mails dated September 8, 2003 and December 9, 2003, which cannot by themselves establish a breach, Greg Hancock presents no evidence that Meritage breached the licensing agreement prior to the time the action was filed").) Defendant accelerated this transition by sending his February 13, 2004 letter instructing Meritage to stop using the name "Hancock" and to remove the name from its Exhibit 11 to GH SOF failed to include Barb Sorget's expert report in its entirety. For the benefit of the Court, the entire report is attached to this Response as Exhibit 1, in order to complete Exhibit 11 to GH SOF.
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advertising. (See Objections at ¶¶ 18-19, 25, 43(a), 67(a), and 69; CSOF at ¶¶ 16, 37, and 126.) Defendant's letter led to this litigation. d. Meritage Could Not Have Breached the License Agreement after Defendant Purportedly Terminated It

Defendant argues that Meritage's post-litigation decision to rebrand the Hancock Communities division to the Meritage division violated the License Agreement. (See, e.g., Greg Hancock Counterclaim at ¶¶ 43, 46, 48, and 61-63.) This Court has already rejected this argument. (Compare Greg Hancock's Answer to Plaintiff's Second Amended Complaint and Counterclaim and Third-Party Complaint of Greg Hancock at ¶¶ 32-48, 55-56, and 58-64 (May 11, 2005) with Order at 5 (Mar. 31, 2006); Greg Hancock's Motion to Stay Entering of Judgment at 2:7-4:10, 5:19-26, and 8:23-9:3 (Apr. 27, 2006) with Order at 10 (Aug. 22, 2006).) Defendant cannot support his assertion that the rebranding program amounted to an abandonment or a "campaign to trash his name." (See Motion at 5:11.) The rebranding program was implemented in July 2004, and was compelled by Defendant's conduct. (See Greg Hancock Counterclaim at ¶¶ 43, 46, 48, and 61-63.) This is five months after Greg Hancock wrote Meritage purporting to immediately terminate the License Agreement and threatening to sue if Meritage did not remove the "Hancock" name from its advertising. (See Objections at ¶¶ 18-19, 25, 43(a), 67(a), and 69; CSOF at ¶¶ 16, 37, and 126.) The rebranding program was also implemented after Defendants opened Rick Hancock Homes. (See CSOF at ¶ 17.) Defendant cannot (1) instruct Meritage to stop using the "Hancock" name; (2) license his brother to use the "Hancock" name to sell the identical homes across the street from Meritage; (3) provide financial assistance in terms of capital contributions and discounted land to Rick Hancock Homes for the same impermissible purpose; and (4) later complain when Meritage modifies its use of the "Hancock" name to address the confusion caused by this conduct. (See Objections at ¶¶ 18-19, 25, 43(a), 43(b), 67(a), 67(b), and 69; CSOF at ¶¶ 16, 19, 20 and 37-39.)

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Case 2:04-cv-00384-ROS

Document 469 - 6 -Filed 04/11/2007

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e.

The License Includes "Rick Hancock Homes"

The express reference to "Hancock Homes" in the License Agreement is sufficient to include "Rick Hancock Homes." See, e.g., Apple Comp., Inc. v. Formula Int'l, Inc. 725 F.2d 521, 526-27 (9th Cir. 1984) (holding that the mark "Pineapple" and "Apple" describing computers were confusingly similar as they contained the same suffix and were used in the same industry); Malaytex USA Inc. v. Colonial Surgical Supply Inc., 44 U.S.P.Q.2d 1291, 1294 (N.D. Cal. 1997) (ruling that the terms "Cranberry" and "Blackberry" are confusingly similar names for latex gloves); Earthquake Sound Corp. v. Bumper Indus., 352 F.3d 1210, 1213 (9th Cir. 2003) (the mark "Earthquake" was confusingly similar to the mark "Carquake" in the automobile audio equipment industry). Further, the Asset Sale and Purchase Agreement specifically amplified the scope of the license by stating that "Greg Hancock and Sellers hereby grant to [Meritage] an exclusive license to use the names `Hancock Homes' and `Hancock Communities,' and all variations of or derivations from such names. . ." (See Objections at ¶ 2) (emphasis added).3 f. Defendant "Reneged" on His Promise to this Court On several occasions in March 2004, the Hancocks promised this Court that they would maintain the "status quo" and not use the "Hancock" name in a homebuilding business that competed against Hancock Communities, and, in express reliance on the Hancocks' promise, this Court entered an Order denying Meritage's Application for a Temporary Restraining Order. (See CSOF at ¶ 21.) In June 2004, in breach of that promise, Rick Hancock Homes and its homebuilding business opened in the same subdivision as Meritage's Hancock Communities, thereby deliberately violating this Court's Order and creating the precise confusion in the marketplace the Court sought to prevent. (CSOF at ¶ 22.) Such conduct should not be countenanced. See, e.g., Green v. Higgins, 217 Kan, 217, 221, 535 P.2d 446, 449 (1975).
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Defendant's reliance on Hilton's testimony is misplaced and taken out of context. Nowhere in the record does Meritage (or its employees) "agree that the [License Agreement] didn't cover `Rick Hancock Homes.'" (See Motion at 3:7-10.)
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2.

Meritage Does Not Need to Obtain Defendant's Permission to Change How It Uses the "Hancock" Name

Notwithstanding Defendant's argument to the contrary, the License Agreement and Asset Sale and Purchase Agreement simply do not require Meritage to seek out Defendant's permission with respect to how it uses the "Hancock" name. (See CSOF at ¶ 24; Objections at ¶ 16.) Instead, Defendant gave Meritage an "exclusive . . . license" and all rights of use belonging to it. (See Objections at ¶¶ 1 and 2; CSOF at ¶ 25.) C. Since Meritage Did Not Breach the Earn-Out Provisions, Defendant Did Not Properly Cancel the License Agreement

Defendant was only entitled to terminate the License Agreement if Meritage breached it or the Master Transaction Agreement ("MTA"). (See CSOF at ¶ 26; Objections at ¶ 18.) Defendant asserts that Meritage breached the MTA by failing to provide him with an accounting of his earn-out in January 2004. (See Motion 5:13-16.) An accounting, however, was not due until March 31, 2004, a month after Defendant purported to terminate the License Agreement. (See CSOF at ¶¶ 27 and 28; Objections at ¶ 18.) Meritage provided Defendant with an accounting prior to that date. (See CSOF at ¶ 29; Objections at ¶ 18.) Additionally, for the period at question, there was no positive earn-out amount, and therefore, no accounting or estimate was owed to Defendant. (See CSOF at ¶¶ 30 and 32; Objections at ¶ 18.) In fact, Defendant's own expert concedes that during the period of time that Defendant worked for the company, Meritage fully paid the earn-outs owed. (See CSOF at ¶ 31; Objections at ¶ 18.) Furthermore, the issue of whether Meritage breached any agreement or duty owed has been raised in Defendant's counterclaims and has actually been litigated and dismissed with prejudice by the Court. (Compare Greg Hancock's Answer to Plaintiff's Second Amended Complaint and Counterclaim and Third-Party Complaint of Greg Hancock at ¶¶ 32-48, 55-56, and 58-64 (May 11, 2005) with Order at 5 (Mar. 31, 2006); Greg Hancock's Motion to Stay Entering of Judgment at 2:7-4:10, 5:19-26, and 8:23-9:3 (Apr. 27, 2006) with Order at 10 (Aug. 22, 2006).)

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Case 2:04-cv-00384-ROS

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D.

For Once And For All, Federal Jurisdiction Is Present

This Motion is at least the eleventh separate time the Hancocks have raised the jurisdiction argument before this Court or the Ninth Circuit. (See Order at 8 n.6. (Aug. 22, 2006).) Defendant has failed each and every time. (See id. at 8:1-2.) "As stated previously, even if the Court ultimately dismiss the Lanham Act claim on the merits, it would retain supplemental jurisdiction over the state law claims. . . . Thus, as long as the court had original jurisdiction over the Lanham Act claim at the time it was filed, it makes no difference for purposes of subject matter jurisdiction whether the claim is ultimately successful." (See id. at 8:18-23.) E. Defendant Wrongfully Assisted Rick Hancock Homes

Defendant claims that there is not a single piece of evidence that shows that he invested in or otherwise assisted Rick Hancock in his home building enterprise. (See Motion at 6:18-20.) This is simply not true. Defendant (1) wrote Meritage in February 2004 purporting to unilaterally (and wrongfully) terminate Meritage's license to the Hancock name; (2) threatened to sue Meritage if it did not remove the name from all advertising and stop using it; (3) then licensed the Hancock name to Rick Hancock so he could use it to sell identical homes rights across the street from Meritage in the same subdivision; (4) sold Rick Hancock the land to build homes at a discounted price; (5) provided land banking services to Rick Hancock; (6) provided substantial monies (more than $330,000) to his brother's homebuilding ventures; and (7) was involved in the operations of Rick Hancock Homes and RLH Development. (See Objections at ¶¶ 18-19, 25, 27, 43(a), 43(b), 67(a), 67(b), and 69; CSOF at ¶¶ 16, 20, 37-42.) At the very least, this evidence gives rise to a question of fact on whether Defendant wrongfully assisted Rick Hancock Homes. F. Defendant Violated His Employment Agreement With Meritage 1. Defendant's Job Performance Argument Is a Red Herring

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Whether Defendant received bonuses or complaints resulting from his job performance was never a basis for Meritage's complaint against Defendant and bears no
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relevance to this matter. Fed. R. Evid. 401. Moreover, since Defendant hid his wrongful conduct from Meritage (see Objections at ¶¶ 33-35 and 44; CSOF at ¶¶ 48-53), whether Meritage provided Defendant with bonuses or complained about his conduct (which it did) is immaterial to all salient issues (except to the amount of Meritage's damages). Fed. R. Evid. 404. 2. Defendant Violated Paragraph 1 of the Employment Agreement

Defendant breached his Employment Agreement and fiduciary duties by secretly commencing the Olympic business and by acquiring land and negotiating financing for it, while not acquiring sufficient land on which Meritage could market and sell homes. (See CSOF at ¶¶ 48-66, 68, and 69.) Paragraph 1 of the Employment Agreement provides in no uncertain terms: · · "Employee agrees to diligently perform the duties associated with such position [President] . . . ." "Employee will devote substantially all of his business time, attention, and energies to the business of the Company. . . ."

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(See CSOF at ¶ 44.) Defendant's own CFO testified that among Defendant's primary duties at Meritage were the acquisition of land and ensuring adequate land that could be sold and marketed. (See Objections at ¶ 30; CSOF at ¶ 45.) Defendant's former COO and current business partner also testified similarly. (See Objections at ¶ 30; CSOF at ¶ 46.) Defendant has testified and acknowledged to others that, for a homebuilding business to be and remain successful, it must grow the available land in the "pipeline" to market and sell. (See Objections at ¶ 30; CSOF at ¶ 47.) Defendant acquired land (e.g., Westwind, Riata West, and Fox Hunt) for his own benefit, usurping Meritage's corporate opportunities to acquire that same land on the same terms offered to Defendant, and Defendant eschewed other opportunities to acquire land for Meritage thereby weakening Meritage financially. (See Objections at ¶¶ 33-35, 44, and 47; CSOF at ¶¶ 48 and 49.) Pursuant to Olympic's Operating Agreement, Defendant directed Olympic to tie up valuable land in the very markets in which Meritage did business with the intent that that land would be developed by homebuilders to compete
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against Meritage. (See Objections at ¶¶ 44 and 47; CSOF at ¶ 50.) Defendant held secret meetings with Devon Properties and negotiated the financing to develop the Westwind project into a master-planned community, only a few miles from Meritage's Sundance development. (See Objections at ¶¶ 44, 46-47, 49, and 51; CSOF at ¶¶ 51 and 79-86.) He arranged for his lawyers ­ the same lawyers he hired to work for Meritage ­ to draft and revise the legal documents to acquire this land and arrange for financing. (See Objections at ¶¶ 44 and 47; CSOF at ¶ 52.) All the while, he was telling his subordinates not to acquire land for Meritage because he would not stay with the company long enough to benefit personally from the acquisition of land. (See Objections at ¶¶ 33-35; CSOF at ¶¶ 53 and 108-115.) Defendant's secrecy and efforts to conceal and cover-up his activities speak volumes about his efforts to cheat Meritage. (CSOF at ¶ 115.) Defendant instructed Cornwall to keep Olympic and its activities secret from Meritage. (See CSOF at ¶ 108.) Because he was afraid that Meritage would sue him, Defendant threatened one of his subordinates with a lawsuit for $12 million if the subordinate (who only learned about Olympic inadvertently through a third-party) disclosed Defendant's Olympic activities to upper management at Meritage. (See CSOF at ¶ 109.) Defendant even concealed his Olympic activities from his right hand man who was a Meritage employee at the time. (See CSOF at ¶ 110.) Defendant's breaches harmed Meritage in many ways, including: (1) causing a loss in sales by failing to maintain Meritage's supply of finished lots and stores (points of contact with customers); (2) reducing the prices of the homes that were sold; and (3) forcing Meritage to incur higher land acquisition costs, collectively amounting to tens of millions of dollars. (See, e.g., Objections at ¶¶ 35-36, 38-39, 42, 54, 56, 63, 67(c), 68-69, and 73-74; CSOF at ¶¶ 54-69 and 126.) While engaging in his secret side business, Meritage paid Defendant more than $9 million in salaries, bonuses and earn-outs. (See CSOF at ¶ 126.) Defendant ignores this evidence, choosing instead to engage in

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credibility attacks and name-calling.4 (See Objections at ¶¶ 35-36, 38-39; CSOF at ¶¶ 63 and 68 (showing that Defendant's credibility attacks are baseless).) G. Questions Of Material Fact Exist Regarding Defendant's Involvement With Olympic, Westwind, And Riata West 1. Defendant Participated in Olympic, Westwind, and Riata West

Notwithstanding Defendant's claims to the contrary, Defendant's 25% initial interest was not his entire ownership stake in Olympic; he owned another 35% for a total of 60%, in return for a mere nominal $3,500 payment. (See Objections at ¶¶ 44-47; CSOF at ¶¶ 72-74.) For that nominal payment, Defendant personally and contemporaneously valued Olympic at $12 million. (See Objections at ¶ 53; CSOF at ¶¶ 74 and 114.) In addition and regardless of what his ownership stake was, Defendant controlled Olympic through the Operating Agreement drafted by his personal attorneys, provided nearly all of Olympic's seed money, personally spearheaded and negotiated other financing efforts, agreed to purchase agreements and opened escrow on real property assets, permitted Olympic to transfer the $12 million in assets for no consideration, and personally acted on behalf of Olympic. (See Objections at ¶¶ 44-53; CSOF at ¶¶ 51, 72-97, 99-102.) In this light, Defendant was not a passive investor. The most damning evidence, however, is Defendant's own testimony admitting as much: Olympic Properties. In looking back on it now, I probably would have been in clear violation of my employment agreement because it says I can't do anything outside the company unless it is a 25 percent passive interest. Olympic Properties was a company that Dave Cornwall and I were going to put together to buy land, plan it, zone it, maybe develop it, maybe not, and sell it to other builders."

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Defendant claims that Mr. Curry's statements regarding the available lots Meritage could sell at certain points of time were lies. (See Motion at 8:4-10.) Defendant simply misconstrues Mr. Curry's testimony. Mr. Curry analyzed data to determine how many lots are available and ready to sell to home buyers ­ as opposed to raw land which would take years to develop. Curry was asked about this issue and testified clearly what he means by available lots: "to communities that have not been developed sufficiently to allow them to sell the lots. . . . "lots available for sale in the context that a lot is available on that date to sell. It's ready to be sold to the public. . . . It's not a piece of raw land sitting out in the desert that an individual is not able to go out and buy a lot from." (See Objections at ¶¶ 35-36, 38-39, and 63; CSOF at ¶ 68.)
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(See CSOF at ¶ 88 (emphasis added).)5 2. Defendant Ignores His Duties to Meritage Defendant asks this Court to hold as a matter of law that the non-compete provision of his Employment Agreement trumps and renders meaningless Defendant's other express duties set forth in the Employment Agreement and eviscerates the common law duties a president of a company owes to it. As noted above, Defendant agreed that he would diligently perform all of the duties associated with his job as President of Meritage's Hancock Communities division, including ensuring that he would acquire adequate land to sell and market homes. (See Objections at ¶¶ 28-30 and 43-44; CSOF at ¶ 44.) He also owed Meritage common law fiduciary duties, including the duty not to usurp corporate opportunities to acquire land assets. See Tovrea Land & Cattle Co. v. Linsenneyer, 100 Ariz. 107, 123, 412 P.2d 47, 58 (1966) (an officer has a duty to purchase property for the company or to refrain from purchasing for himself when it would hinder or defeat the plans and purposes of the corporation in carrying on its usual business); Atkinson v. Marquart, 112 Ariz. 304, 305-06; 541 P.2d 557-58 (1975); PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS AND RECOMMENDATIONS § 5.05 (1994); (see Objections at ¶¶ 28-30; CSOF at ¶¶ 45-50 and 115.) The non-compete provision does not say that it trumps these duties; indeed, the "passive investor" language preserves and reinforces Meritage's rights and Defendant's duties to Meritage. (Objections at ¶¶ 28-30 and 43-44; CSOF at ¶ 44.) 3. Defendant Damaged Meritage as a Result of His Failure to Bring Riata West and Westwind to Its Attention

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While he was an employee and officer of Meritage, Defendant invested $79,500.00 for his 60% interest in Olympic, Riata West, and Westwind. (See Objections at ¶ 59; CSOF at ¶¶ 99 and 114.) Instead of providing that same opportunity at the same cost to Meritage (see CSOF at ¶ 101), he took the opportunity for himself. In fact, he did not Defendant also has a secret back-up plan. When Cornwall bought Defendant out of Olympic, they agreed to allow Defendant back in after his dealings with Meritage ended. (See Objections at ¶¶ 51-52, 54-55, and 58-59; CSOF at ¶¶ 93-95, 100 and 112.)
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even transfer those rights to Meritage when he was eventually bought out by Cornwall, choosing, instead, to transfer it to Cavalier ­ named after Defendant's family business ­ for no consideration. (See Objections at ¶¶ 51-52, 54-55, and 58-59; CSOF at ¶¶ 93-95, 100, and 112.) But for Defendant's usurpation of Meritage's corporate opportunities, Meritage would have purchased substantial interests in Westwind, Riata West, and other properties back in 2001, as shown by its purchase in late December 2002 of the same properties. (See Motion at 11:17-19; CSOF at ¶ 101.) As a result, eighteen months later, Meritage was required to pay an additional buy-in fee of $1,000,000 and an additional capital contribution, for only a 16% preferred return on its investment and 30% of profits. (See Objections at ¶¶ 56, 59-60, and 63; CSOF at ¶ 105.) In other words, Meritage received half the amount of proceeds that Defendant was going to receive through Olympic ­ but for many fold more money, causing Meritage damage in the amount of $4.2 million. (See Objections at ¶ 56, 59-60, and 63; CSOF at ¶¶ 105-106 and 126.) H. Damages 1. Unfair Competition

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Defendant argues that Meritage has provided no evidence of damages with respect to the unfair competition claim because there is no evidence that proves that the Defendants' conduct caused the loss of a single sale. (See Motion at 13:18-21). Defendant's argument is puzzling on a couple of fronts. To begin with, Defendant presumes a legal requirement ­ evidence of actual confusion causing a loss in sales ­ that does not exist for a Lanham Act unfair competition claim; Meritage only needs to prove that there is a likelihood of confusion or that there was initial interest confusion. E. & J. Gallo, 967 F.2d 1280, 1290-92 (9th Cir. 1992) (citing Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1360 n.10 (9th Cir. 1985)). "Infringement can be based upon confusion that creates initial customer interest, even though no actual sale is finally completed as a result of the confusion." 4 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION at § 23:26 (4th ed. 2006). Infringement has been found where a junior

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mark user attempts to capitalize on the consumers' initial interest confusion in thinking that the junior mark user is related to the senior mark user. Nissan Motor Co. v. Nissan Comp. Corp., 378 F.3d 1002, 1019 (9th Cir. 2004); Dorr-Oliver Inc. v. Fluid-Quip Inc., 94 F.3d 376, 382 (7th Cir. 1996). Nevertheless, the evidence establishing both the likelihood of confusion and actual confusion between "Rick Hancock Homes" and "Hancock Homes" or "Hancock Communities" and how that confusion caused lost revenue is substantial and detailed in the Objections and CSOF filed herewith. (See Objections at ¶ 68; CSOF at ¶¶ 22-23 and 116-125.)6 2. Defendant Ignores the Initial Interest Doctrine and that the Lanham Act Provides that the Measure of Damages Includes Defendant's Lost Profits

Defendant ignores the Ninth Circuit's initial interest confusion doctrine, which holds that sales are presumed to be lost at the time of the initial interest confusion. Nissan Motor Co., 378 F.3d at 1019 ; see also Dorr-Oliver Inc. v. Fluid-Quip Inc., 94 F.3d 376, 382 (7th Cir. 1996) (to impact the "buying decisions of consumers in the market for the goods, effectively allowing [defendants] to get [their] foot in the door by confusing consumers" causes the harm and damages). That confusion need not last long to be actionable; even initial interest confusion suffices to establish liability. See Brookfield Comm'ns v. West Coast Ent't Corp., 174 F.3d 1036, 1062 (9th Cir. 1999); Grotrian, Helfferich, Schulz, Th. Steinweg Nachf v. Steinway & Sons, 523 F.2d 1331, 1342 (2d Cir. 1975). Here, the confusion occurs before a prospective home buyer meets with Meritage's sales agents and Meritage loses the opportunity to make the sale either (1) because defendants made the sale, (2) because defendants failed to persuade the customer, or (3) because defendants acted in a manner that "put off" the customer. For example, Sgt. Mario Atkins was interested in purchasing a Hancock Communities home from Meritage. (See Objections at ¶ 68; CSOF at ¶¶ 119.) Believing that Rick Hancock Homes was affiliated "with the Meritage/Hancock subdivision at Sundance and to be a Hancock Home in a Hancock Community built by Meritage[,]" Sgt. Atkins set up an appointment with Rick Hancock Homes and entered into a lot hold guaranteeing him the option to purchase a home at Rick Hancock Homes in Buckeye. (See Objections at ¶ 68; CSOF at ¶ 119-122.) Sgt. Atkins never bought a home from Meritage.
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As a statutory acknowledgement of the difficulty of proving lost sales in these contexts, damages for an unfair competition claim not only may include lost sales but also may include the defendants' profits. 15 U.S.C. § 1117(a); Lindy Pen Co., Inc. v. Bic Pen Corp. 982 F.2d 1400, 1407 (9th Cir. 1994) (noting that damages for Lanham Act violation include Defendant's profits); Gracie v. Gracie, 217 F.3d 1060, 1068 (9th Cir. 2000) (same). Here, defendants gained gross profits of $45 million.7 (See Objections at ¶¶ 14, 67(c), and 68; CSOF at ¶ 126.) 3. Other Damages

Whether Meritage disclosed damages to the Securities & Exchange Commission ("SEC") is simply not relevant to the issue of whether Meritage in fact suffered damages. Fed. R. Evid. 401 and 404. It is nonsensical and ignores the difference between losses for SEC purposes and damages in a civil lawsuit. Nevertheless, in its 2003 10-K filed with the SEC and disclosed to the public, Meritage observed that the ability to acquire additional land impacts Meritage's profitability. (See Objections at ¶¶ 73-74.) The record reveals that Defendant caused Meritage to suffer damages as follows: 1. $44 million caused by Defendant's breach, half way through, of the License Agreement acquired by Meritage for $88 million. (See CSOF at ¶ 126). 2. $9.85 million of the $19.7 million is lost good will because Defendants wrongfully forced Meritage to reduce its use of the name "Hancock" half-way through the License Agreement (See id.) 3. Approximately $1.62 million in compensation paid to Defendant after his secret Olympic activities commenced. (See id.) 4. The summary of damages that are delineated in Gregg Curry's Expert Report, Supplemental Expert Report, and Rebuttal Report. Those reports provide: o $23.3 million of lost profits suffered as of June 2005 as a result of Greg Hancock's breach of his employment contract and his fiduciary duty to Meritage and damages related to other wrongful conduct that unjustly enriched the defendants. (See id.) Defendant "ha[s] the burden of proof as to the allowance of any deductions from his gross sales." 5 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 30:66 (4th ed. 2006); "Plaintiff need only prove gross sales and it is then the infringer's burden to prove (1) which, if any, of those sales were not attributable to the wrongful act, and (2) deductible costs and expenses to arrive at net profits." Id.; see also 15 U.S.C. § 1117(a). Defendant has failed to meet such a burden.
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o $45 million related to the Hancocks' trademark infringement and unfair competition of the Hancock name. (See id.)8 o $4.2 million in land acquisition costs resulting from lost opportunity damages on Westwind, Riata West, and Kings Ranch. (See id.) o $5.3 million in excess earn-out payments to Defendant as a result of his breaches of his contractual and common-law duties. (See id.) o $2.2 million in earn-outs paid despite Defendant's breach of the MTA. (See id.) Accordingly, there is sufficient evidence of damages to create a question of fact. III. CONCLUSION. For the reasons stated above, this Court should deny Defendant's motion for summary judgment in its entirety. DATED this 11th day of April, 2007. SNELL & WILMER L.L.P.

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By s/ Dan W. Goldfine Dan W. Goldfine Adam Lang One Arizona Center Phoenix, AZ 85004-2202 Attorneys for Plaintiffs and

By s/ Grant Woods Grant Woods GRANT WOODS, P.C. 1726 North Seventh Street Phoenix, AZ 85006 Attorneys for Plaintiffs

The amount reported in Mr. Curry's report was updated by the disclosure of the defendants during the deposition of Mr. Cole. (See CSOF at ¶ 126.)
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CERTIFICATE OF SERVICE I hereby certify that on April 11, 2007, I electronically transmitted the foregoing document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Ivan K. Mathew Mathew & Mathew, P.C. 3300 North Central Avenue, Suite 1730 Phoenix, Arizona 85012 Attorneys for Defendants Rick Hancock, Brenda Hancock, Rick Hancock Homes, L.L.C., and RLH Development, L.L.C. Robert M. Frisbee Frisbee & Bostock, PLC 1747 East Morton Avenue Suite 108 Phoenix AZ 85020 Attorneys for Defendant Greg Hancock Kenneth J. Sherk Timothy J. Burke Fennemore Craig, P.C. 3003 N. Central Ave. Suite 2600 Phoenix, AZ 85012-2913 Attorneys for Defendant Snell & Wilmer, L.L.P. in State Court Action s/ Becky Kinningham
1936788.14

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